Sunday, 22 June 2008

The Exercise in Futility

Futile Gordon Brown will by now, one presumes, be starting to appreciate the futility of his mission to the Middle East. With despondency amongst his cabinet, mutterings of revolution within the backbench ranks and evaporation of goodwill from the electorate, it's not clear precisely what audience he is playing to. He would like us to see his trip to Jeddah to persuade OPEC oil producers of his 4-point plan to ease world oil market mayhem as befitting the experienced statesman he sees himself to be. He is acting as though his guests have a scintilla of empathy with his aims, and as though his domestic protagonists will see the move as anything greater than a vain attempt to be seen to be doing something, anything to shift the focus away from him and his increasingly tenuous administration. Brown would love us all to be behind him in blaming the rest of the world for our local problems.

And, to be fair, he does have something of a point. Britain's influence as a world power withered to next to nothing years ago. If we ever had the oomph to force the oil producers to revise their output plans, it was lost decades past. But Brown does still preside over the world's 5th largest economy, even if our place in the league table has the force of gravity upon it. We are a heavily oil- and gas-dependent nation, and it is reasonable for our leaders to be trying to bring to bear whatever arguments they can muster to entice more production from OPEC. And the recent 2% output rise promised by Saudi Arabia is a nod in the right direction. (Interesting that, having been handed salvation of their country from Saddam the Kuwaitis are not falling over themselves to raise oil output to ease the woes of their liberators.)

However, in any bargaining situation both sides have to stand to gain. We need a win-win. Gordon's plan is flawed and futile because it does not even meet this basic criterion. Put simply, there's nothing in it for OPEC, so why should they even listen? They will listen, they will shake his hand and pose for the cameras. They may even bring out their second best tea service for refreshments before he catches his plane back home. But what they will not do is cut of their own noses. Don't expect oil production to rise any time soon.

So, to Brown's plan. Where is he going wrong? As he told EU leaders, his aims are:

  • Making the market work better to reduce volatility in oil prices
  • Making the most of the world's existing oil reserves
  • Accelerating the switch to alternative sources of energy
  • Enabling oil producers to invest in alternative energy supplies

Making oil markets work better. Why would that make a jot of difference to oil producers? They produce what they want, when they want. The purchaser keeps paying higher prices. So far as they are concerned, the market is working pretty damn well at the moment. They care not a jot whether speculators are making a killing in the middle so long as demand stays strong and they maintain security of income. Nothing will happen in the short to medium term to disavow the world of its love of oil, nor the speculators that they can second guess the market. Certainly no gesturing from the UK government stands any real prospect of influencing either the market makers or the oil producers. Brown 0, OPEC 1.

Making the most of the world's oil reserves. Now even OPEC will admit that oil isn't going to last forever. They won't tell you how much they have in reserve, nor what the life expectancy of their oil fields are, so it's a guess just how long supplies will last. But as oil becomes scarcer the producers will want more for it, not less. And the resources which were hitherto too difficult to economically extract can be drilled when prices are high enough to make it worthwhile. Decreasing supply = high prices until supply runs out entirely. Brown 0, OPEC 2.

Accelerating the switch to alternative energy sources, enabling oil producers to invest. Now here Brown may have a fighting chance, although not in the way he would like. Sure, while the sheiks are trying to extract every penny they can from a diminishing resource they must have an eye on how little Johnny and Sally Sheik will pay for their fleets of Mercedes in the years to come. Quite how far into the future that will be is uncertain, but those OPEC countries whose economies depend almost entirely on oil (which is most of them) must surely foresee the day fast approaching when the last well is closed off and they have to make a living some other way. So expect to see investment in wind, wave, solar and ground thermal power sources increasing from the OPEC producers over the coming years. But don't imagine for a second that they will compromise their lifestyles in order to introduce these wonderful technologies. The buyer will fund it through high oil prices, just like now. As Nick Clegg put it, if Brown thinks OPEC will fund wind farms in the UK he must be living in 'Cloud cuckoo land'. The boy Clegg doesn't get it right too often, but he's bang on the nail there. Brown 0, OPEC 4.

Quite apparently the oil producers have the upper hand. In fact the entire deck is rigged in their favour. Brown calls for a change to current practices so that "Whenever there is protectionism it is tackled. So that instead of uncertainty and unpredictability there is greater certainty. And instead of instability there is greater stability". Hang on, did he say that protectionism should be tackled? Isn't that like asking the Mafia to adopt safe working practices, or trying to persuade Marlboro that cigarettes cause cancer? OPEC is protectionism. It is protectionism enshrined, embodied and unembarassingly emblazoned on the souls of its members. Brown has more chance of persuading David Cameron to get a Michael Foot tattoo on his arse than he has of getting OPEC to look after anyone's interests ahead of its own. It will protect its profitability until the last barrel is bone dry.

Brown want's win-win, but the truth is he lost 11 years ago. Back then Blair and his henchman had the chance to invest the increasing tax take in renewable energy, nuclear power, bringing the grid up to speed to connect to offshore wind farms, encouraging efficient vehicle production (rather than taxing inefficient vehicles), done all of the things he is espousing now but ahead of the crisis instead of within in.

But despite this he could not have prevented the oil running out, the Asian economic boom or the obscene power wielded by international speculators. He could not have prevented the fall.

But he could have given us a bigger pillow to land on.

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